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Wednesday, April 30, 2014

Today's market action was choppy around Fed's meeting, which was very much expected. Fed did not announce anything new and continued its taper at $10 B. Although it seems like a regular tapering pattern, the impact of this taper will soon become pronounced. As funds dry up, buying power will go down.

Yesterday, a ending diagonal pattern was published on the blog in DJIA. This pattern is still in play and its possible that tomorrow morning we might see a spike to complete the pattern. Overall, market patterns are looking more and more complete in different indices:

DJIA: Ending Diagonal pattern is nearing completionRussell & Nasdaq: Have completed minimum requirements for this rallyGDOW: Needs one last rally, which should end below early April high. If this rally goes above early April high, we will re-evaluate.

Overall, it is a very exciting time in the market. There are ending diagonals and Head & Shoulder patterns cropping up in the market. Following charts shows both the ending diagonal in DJIA and H&S in Nasdaq.

Both of these patterns, if completed, would mean much lower prices.

From a fundamental point of view, lower prices make sense. However, we have recently seen an increase in bearish calls from well-known market analysts. This chorus of bearish analysts concerns me, as they are mostly wrong. But then again, if things are really bad, good analysts have the responsibility to highlight them.

Therefore, caution is warranted. If the trade triggers tomorrow, we will have our stops in place to avoid being against the trend - in case market does an about turn and starts rallying (which is a very low probability).

Tuesday, April 29, 2014

A very interesting observation was made today in DJIA. Dow's Elliott Wave structure has confused us for a while. I personally have tried to evaluate the structure from several different angles, but was not successful because of the fact that DJIA had multiple 3-waves since October 2013. 3-wave are very difficult to interpret.

Since 3-wave sequences appear in either triangles or in diagonals, it seems like DJIA is tracing out an ending diagonal. Following chart shows a matured ending diagonal with all sub-waves being 3-waves. We are just missing one spike, followed by sharp sell-off. We might get that spike tomorrow, after FOMC meeting.

Sell-off could lead to lower price levels. Typically, when an ending diagonal breaks, prices quickly trace back to the origin. This would mean that the price target would be around 15000 or lower in DJIA. This observation will be in line with the IPM Model turn dates and the 8/4 test completion to the downside.

Monday, April 28, 2014

Market Overview

Although SP500 did not reach its target, TZA rallied much more. Today in the morning, TZA profit objective was hit. After that point, IPM Trade Matrix requires trailing stops to be tightened i.e. trailing stop criteria changes to being more aggressive.

This afternoons rally triggered that trailing stop. As a result, IPM Trade Matrix got out of the trade. This trade generated ~11% profit in 4 days. Now we can rest for a couple of days and re-evaluate the market.

IPM Trade Matrix's next trade will be a short trade. We just have to wait for the setup. Market is setting up for a something big over the next couple of months. Earnings have not be spectacular, unemployment data was much worse than expected and housing numbers were outright bad.

Under these circumstances, Fed's FOMC meeting is scheduled for Wednesday. In that meeting, Fed will likely continues its monetary tightening. This taper announcement will be followed by April job numbers. If Friday's data is bad, it could open the flood gates. We will try to position for the trade based on information of the upcoming IPM turn window and IPM Trade Matrix triggers.

BAsed on historical performance of the IPM Trade Matrix, we are hopeful that next trade will washout the 18% loss we incurred due to WIIW (Weekly IPM Influence Window).

Thursday, April 24, 2014

If a country is prosperous and if its people are well-to-do, then it will happily and willingly bear any burden. The poverty of the people is the actual cause of the devastation and ruination of a country, and the main cause of the poverty of the people is the desire of its ruler and officers to amass wealth and possessions, whether by fair or foul means.

Note: Updates will be brief in the near future. I have some pain in the arm.

Tuesday, April 22, 2014

Still waiting for the short opportunity. Will go full short if the followings levels are broken. Following is the pattern that I have been following for a few weeks now. It looks complete with clear 5-wave decline and 3-wave rise. This same pattern sported by small caps. DJIA and SP500's patterns are not perfect with 5th wave being truncated.

In any case, today's rally also created a Dow Theory divergence. If market starts to decline sharply, this divergence will take hold. Have started dipping into shorts at the close today, but will wait for a full trigger before going full short.

Monday, April 21, 2014

Market has been very interesting over the past few weeks. In early part of April market declined sharply. This decline prompted many prominent market analysts to turn bearish and they started shorting every rally. However, per IPM Model we knew that the market will rally into the IPM turn window because the upcoming turn window was supposed to mark a top.

As a result, IPM trade matrix stayed away from shorting the market, while many people lost all their profits that they made in early short trades. This shows us the importance of accurate market timing. And we think that by the grace of God, Inflection Point Model is one of the most accurate market timing algorithms. This also why, we are not publicizing IPM's ability on the internet to ensure its benefits for subscribers.

With recent development of WIIW (Weekly Inflection Influence Window) Algorithm, we are hopeful that will be better prepared for the lower high or high low scenarios in the future. This will maximize future gains per IPM trade matrix.

Overall, market is approaching a very critical juncture. Subscribers already know the turn dates. We will go short if the below mentioned levels are broken within the IPM turn window, with the assumption that upcoming decline will be a persistent decline.

Long TNA at 82.1 ==> Exit at 67.3 ==> -18% (Loss due to Weekly Inflection Influence Window - Model has been updated to catch these scenarios in future)

Losses were governed by the Weekly IPM Window influencing the daily turn dates. As mentioned on the blog and in the research papers, this happens twice every three year. This influence is the cause of 5% inaccuracy in the IPM model. This inaccuracy has been highlighted in the white paper and IPM handbook.

As mentioned in the last update, this loss has enabled us to build two fail safes into the trade matrix, along with improving the forecasting ability of the IPM model to forecast WIIW (Weekly Inflection Influence Window) events. These two updates will hopefully resolve this issue and improve the model for future application.

Over here I would like to really appreciate the UST team, who decided to solve the root-cause of the problem, rather than just living with fail-safes. Addressing the root-cause will make the IPM Trade Matrix more robust and profitable. Above all, I would like to thank Almighty for guiding us in the algorithmic world.

Finally, you might have noticed that the one thing that differentiates Understand, Survive and Thrive from other blogs or websites is the fact we share real-time trade information, don't hide losses and don't boast winners. Winning and losing is part of stock market. Most important things is that one should keep on learning from his/her experiences. We have learned over the past 5 years, developed a model and implemented it for real-time trading. And we will keep on improving this model, with every passing day. Above all, we adhere to the principle of stock market being a probability game. On March 18, it was stated that:

"As we start IPM Trade Matrix - Trade 7, Trade Matrix has been up 6-0 over the last 2.5 months by the grace of almighty God. As most of you statistical wizards know, probability will catch up to the model at some point in time i.e. model will have a losing trade. And as we have more positive trades in a row, probability of a losing trade increases."

The above statement clearly shows that we never claimed 100% success because no model can be 100% successful. And if someone claims 100% success, he is not telling the full story. I hope that our latest update, will improve our accuracy rating from 95%.

In short, at Understand, Survive and Thrive, you will get the true picture based on statistical analysis rather than imaginary claims.

Last week’s market action was pretty bearish. Market kept on declining even in the face of several bullish developments including approaching IPM model top date (Note: Market will rise into IPM top date, but will mark a lower high). As mentioned previously, this kind of behavior typically manifests near a trend change. We have seen such behavior in May 2011, Sept 2012, Sept 2008 and others.

Recent market movements have further strengthened the case of a trend change, as 8/4 test was completed last week in major indices. This means the trend has already changed. Although this trend change
resulted in an IPM Trade Matrix’s losing trade, it was a very good development as it allowed us to improve both IPM Trade Matrix and Inflection Point Model’s forecasting ability.

One of the biggest lessons learned was the identification of the influence of Weekly IPM Turn window on Daily turn windows. Although we knew about this behavior since 2011, it was very difficult to quantify which weekly turn dates were influencing daily turns. As a result of recent market action, UST team diligently searched the historical data library in conjunction with a plethora of indicators to identify key weekly turns which influence daily IPM dates.

After exhaustive analysis, it appears that we have identified a key metric which would highlight Weekly Inflection Influence Window (WIIW): Timeframe where weekly IPM turn windows will influence daily turns. This development will not only better prepare us for future changes, it will also improve our trade ability i.e. we might be able to enter short or long earlier than the regular turn dates to maximize profits. Please note that these WIIW scenarios are seldom and do not influence 95% of the trades, but this information is very important because it will help protect us against losses during WIIW.

Sunday, April 13, 2014

Last market decline has given has a very insightful understanding of the market and Inflection Point Model.

This is divided in to two parts:
1- IPM Trade Matrix enhancements to amplify profit, reduce risk and mitigate a change in trend.
2- Better forecasting ability, near the turn dates where we have seen Lower High or Higher Lows

Wednesday, April 9, 2014

Today's rally was very exciting as it proved us & the IPM Trade Matrix right (by the grace of God). Recent market action underscores the importance of the following:

IPM Trade Matrix: Objective market trading/investing tool

Evolutionary nature of markets. If one wants to be successful in markets, he/she cannot be stubborn.

Market analysis through various tools, to come to a logical conclusion.

For example, up until mid-March we were expecting to see a major top in May 2014. Then in late-March, it was identified that there was a weekly IPM turn window. This observation highlighted the potential of a much more significant bottom to be followed by a sharper rally. And today's analysis suggests that there is a very unique potential of an inverted head and shoulders being traced out by the U.S. markets (shown below). If this is true, markets will soon experience a very sharp rally.

This rally will take many market analysts by surprise, as most are expecting a sharp correction. And are forgetting the fact that market has been correcting with time for the past 4 months. Even if this possibility does not materialize, the risk-reward ratio is very good.

First chart shows SP500. Potential target for the breakout would be: 2000.

Following chart shows DJIA. Potential breakout target would be 17,500.

These scenarios are supported by the Weekly IPM Turn date (sent to subscribers), recent shift in the sentiment picture (Optimism to Pessimism), and Elliott Wave count. Above, this scenario will be nullified, by a decline below Tuesday's (4/8/14) low. Details of IPM Turn Widows & implications are emailed to subscribers on a regular basis.

There has not been any changes to the IPM Trade Matrix - Trade 7. Details will be published tomorrow.

Tuesday, April 8, 2014

So the market continued its decline and again brought us into the negative territory. To be honest, being red hurts. But we already knew that the model's accuracy is rated at 95%, which means that after 6 positive trades, potential for a losing trade was very high.

Historically, every year market experiences an instance where a market turn occurs outside of the IPM turn window. For example:

2010: Market bottomed in early February & made a higher low during IPM turn window. Market continued to rally.

2011: Market topped in early May & made a lower high during IPM turn window. Market continued to decline.

2012: Market topped in mid September & made a lower high in October. Market continued to decline.

2013: Market topped in mid April & declined to trigger sell signals but did not continue its decline. In fact, it started rallying.

One thing common among all of the above mentioned scenarios was the action in one critical indicator. When the market declined, that indicator was bearish and when market rallied, that indicator was bullish. So far, this indicator is still bullish. Therefore, the assumption is that market will soon rally. In any case, one thing to note is that the market typically makes a lower high during IPM turn windows. Therefore, there is a very good chance that market will at least provide an opportunity to mitigate some of our losses.

If the above analysis materializes and the market continues its rally, we will adjust the IPM Trade Matrix logic to include this scenario. This will enable the IPM Trade Matrix to effectively work in those 5% mistimed situations.

Moreover, although stops were hit in SP500 & DJIA, stop level has not been hit in GDOW. Longs will be exitted when Global Dow's stops are hit.

More longs were added based on IPM Turn Window risk reduction. Trade was initiated on 3/18/14 based on IPM Trade Matrix Trigger.

Note:

4/1/14: IPM Trade Matrix has been updated and future trades will include a new fail-safe to ensure trade entry near the break-out and reduce uncertainty.

4/8/14: Based on recent market action, we are making another tweak to the IPM Trade Matrix. This tweak will capture those instances where market might top/bottom ahead of the turn window. This would allow us to manage risk more actively and prevent us from exiting the market near the bottom.

Wednesday, April 2, 2014

Today market went sideways, and did not trigger any short-term sell signals. This is a very encouraging sign, as market continues to move up without entering over-bought territory. Some other encouraging signs include:

Investors adding shorts into this rally. This shows skepticism over market's rally future.

No sell signals have been triggered

Although SP500 hit all time new highs today and DJIA is within cents of all-time highs, there was no headlines on CNN, CNBC or any other major news outlet

High Frequency Trading discussion is adding confusion in the mix, which is good for further market rally.

New highs by DJIA will confirm Dow Theory buy signal

All of these are encouraging signs, and indicate that market could continue its rally till daily IPM turn window (already emailed to subscribers). Furthermore, it appears that the weekly IPM turn window (already e-mailed to subscribers) has indeed resulted in a significant turn.

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